InnVest REIT reports first quarter results



    TORONTO, May 8 /CNW/ - InnVest Real Estate Investment Trust ("InnVest",
the "REIT" or the "Trust") (TSX: INN.UN) today announced financial results for
the three months ended March 31, 2009.
    "The lodging industry continues to experience a slowdown in demand,
reflecting broader economic trends and their impact on discretionary spending
for travel. Diligent cost controls coupled with efforts to drive room rates
throughout the portfolio helped mitigate the impact of reduced occupancies
across the portfolio," commented Kenneth Gibson, InnVest's President and Chief
Executive Officer. "Looking ahead, we expect 2009 to continue to be a
difficult year for the hospitality sector. Our objectives through this period
are to solidify our balance sheet liquidity and effectively manage our
assets."

    
    First Quarter Highlights

    -   ADR growth of 0.8% was offset by a 3.6 point decline in occupancy
        driven by the deteriorating economic environment and its impact on
        discretionary travel demand. As a result, RevPAR on a same-hotel
        basis declined 5.5%. These results outperformed the RevPAR achieved
        across the Canadian lodging industry during the quarter;
    -   Overall, hotel revenues declined 6.1%, or $8.2 million, to
        $127.7 million. The revenue shortfall was somewhat offset by a 3.1%
        reduction in hotel expenses. Overall, HOI declined $4.8 million to
        $18.4 million;
    -   The REIT generated a first quarter net loss of $15.4 million,
        relatively unchanged from the prior period;
    -   The Trust maintained a prudent payout ratio of 87.5% on a trailing
        twelve month basis. Distributable loss and funds from operations both
        declined in the first quarter of 2009 as compared to 2008 reflecting
        the impact of lower revenues; and
    -   Following the end of the first quarter of 2009, the Trust divested
        one hotel, previously classified as held for sale, for gross proceeds
        of $4.1 million.

    The first quarter is traditionally InnVest's lowest earnings period. Given
the seasonality of the portfolio, the first quarter is not indicative of
earnings for the full year. Revenues are typically higher in the second and
third quarters due to leisure travel trends as compared to the first and
fourth quarters.

    FINANCIAL HIGHLIGHTS

    -------------------------------------------------------------------------
    (In thousands of dollars except average daily rate, revenue per
     available room and per unit amounts)
    -------------------------------------------------------------------------
                                               Three months ended March 31
    -------------------------------------------------------------------------
                                               2009        2008         +/-
    -------------------------------------------------------------------------
    Occupancy                                  52.6%       56.2%      (3.6)%
    -------------------------------------------------------------------------
    Average daily rate ("ADR")               $114.09     $113.29       $0.80
    -------------------------------------------------------------------------
    Revenue Per Available Room ("RevPAR")     $59.98      $63.64      ($3.66)
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Hotel revenues                          $127,701    $135,940     ($8,239)
    -------------------------------------------------------------------------
    Hotel operating income                   $18,416     $23,169     ($4,753)
    -------------------------------------------------------------------------
    Net loss and comprehensive loss         ($15,420)   ($15,073)      ($347)
    -------------------------------------------------------------------------
    Add/(deduct)
      Depreciation and amortization           22,712      21,356       1,356
      Future income tax recovery              (6,931)     (3,520)     (3,411)
      Non-cash executive and trustee
       compensation                               86         155         (69)
      Writedown of assets held for sale            -         500        (500)
    -------------------------------------------------------------------------
    Funds from operations(1)(2)                 $447      $3,418     ($2,971)
    -------------------------------------------------------------------------
    Funds from operations per unit(2)
     - basic                                  $0.006      $0.047     ($0.041)
     - diluted                                $0.006      $0.047     ($0.041)
    -------------------------------------------------------------------------
      Amortization of deferred financing
       costs                                      17       1,314      (1,297)
      Non-cash portion of mortgage
       interest expense                          424         258         166
      Reserve for replacement of furniture,
       fixtures and equipment and capital
       improvements                           (5,427)     (5,848)        421
      Non-cash portion of convertible
       debentures interest and accretion         784         578         206
      Deferred land lease expense and
       retail lease income, net                    2           8          (6)
    -------------------------------------------------------------------------
    Distributable loss(2)                    ($3,753)      ($272)    ($3,481)
    -------------------------------------------------------------------------
    Distributable loss per unit(3)
     - basic                                 ($0.050)    ($0.004)    ($0.046)
     - diluted                               ($0.050)    ($0.004)    ($0.046)
    -------------------------------------------------------------------------
    Distributions per unit(4)                $0.1875    $0.28125    ($0.0938)
    -------------------------------------------------------------------------
    (1) For purposes of the calculation of funds from operations,
        amortization of deferred financing is excluded from depreciation and
        amortization.
    (2) Hotel operating income, funds from operations and distributable
        income are non-GAAP measures of earnings and cash flow commonly used
        by industry analysts. Non-GAAP financial measures do not have a
        standardized meaning and are unlikely to be comparable to similar
        measures used by other organizations.
    (3) Distributable income per unit has been calculated on a basis
        consistent with that prescribed by GAAP for calculating earnings per
        unit.
    (4) Distributions per unit include cash distributions and distributions
        arising from the Distribution Reinvestment Plan.


    The operating statistics relating to room revenues are on a same-hotel
basis and exclude the hotels that have been classified as discontinued
operations and hotels that have not been included in operating results for the
full periods presented.

    For the three months ended March 31, 2009

                      Occupancy                ADR              RevPAR

                      %   Variance          $   Variance        $   Variance
                           to 2008               to 2008             to 2008

    Ontario       51.1%   (4.1 pts)   $109.84       0.2%   $56.11      (7.4%)
    Quebec        52.2%   (2.8 pts)   $105.75       0.8%   $55.21      (4.3%)
    Atlantic      49.1%   (4.4 pts)   $104.47       1.3%   $51.33      (7.0%)
    Western       59.2%   (2.3 pts)   $137.03       1.0%   $81.08      (2.9%)
              ---------------------------------------------------------------
    Total         52.6%   (3.6 pts)   $114.19       0.8%   $60.11      (5.5%)


    FINANCIAL REVIEW (In thousands of dollars, except per unit amounts,
    unless otherwise stated)

    Three months ended March  31, 2009
    

    For the three months ended March 31, 2009, hotel revenues decreased by
$8.2 million, or 6.1%, to $127.7 million. First quarter results were impacted
by the deteriorating economic environment and its impact on discretionary
travel demand. For the three months ended March 31, 2009, a 0.8% increase in
ADR was offset by a 3.6 point decline in overall occupancy. The trend of ADR
growth offsetting occupancy declines is consistent with trends experienced
through late 2008. Overall, first quarter RevPAR decreased 5.5%. RevPAR trends
were generally consistent across all service categories and brands. Notably,
RevPAR from the 2007 full-service portfolio additions outperformed the RevPAR
achieved across the balance of the portfolio.
    Consistent with RevPAR performance achieved during the quarter, overall
room revenues for the three months ended March 31, 2009 decreased $5.8
million, or 5.6%, to $98.1 million. Each region experienced modest ADR growth
which offset declines in occupancies. The overall declines in occupancy are
more broadly related to economic conditions beyond the control of the Trust.
As was experienced in 2008, Ontario continues to show the weakest performance
given its particular reliance on the manufacturing industry.
    For the three months ended March 31, 2009, non-room revenues totalled
$29.6 million, down $2.4 million or 7.6% compared to the prior year. Non-room
revenues are directly impacted by overall occupancy. Lower occupancy results
in the reduced use of ancillary services offered at the hotel.
    In periods of declining occupancies, the Trust is focused on managing all
costs to minimize the overall impact on profitability. It should be noted that
savings opportunities are restricted during lower occupancy periods such as
the first quarter, particularly in smaller limited service hotels, given the
minimal infrastructure in place. Many property level expenses, including
property taxes, leasehold payments and insurance, are relatively fixed and do
not necessarily change in accordance with overall demand levels.
    Hotel expenses for the three months ended March 31, 2009 declined $3.5
million or 3.1% when compared to 2008. The decrease reflects reduced
occupancies as well as active steps taken by the Trust to manage costs
throughout the portfolio in light of the softer economic environment. Some of
these initiatives, implemented in 2008, include hiring freezes and salary
freezes throughout most of the portfolio and at the Trust's corporate offices,
as well as seeking to maximize value from vendors through pricing concessions.
These initiatives should continue to benefit future periods.
    Given the overall decline in revenues, hotel operating income margins for
the three months ended March 31, 2009, declined to 14.4% as compared to 17.0%
in 2008. First quarter margins are not representative of annual margins
achieved for the portfolio given the seasonality of earnings. The first
quarter is historically the weakest earnings period for the Trust.
    Other income and expenses for the three months ended March 31, 2009
totalled $40.0 million, down $418 as compared to 2008. For the three months
ended March 31, 2009, the REIT generated a future income tax recovery of $6.9
million, as compared to $3.5 million in 2008. In addition to ongoing
operations and capital expenditures, the future income tax recovery realized
in the first quarter of 2009 reflects the provincial SIFT tax rate change
which was enacted in March 2009 along with the impact of the reclassification
of certain assets as held for sale.
    InnVest realized a net loss from continuing operations of $14.6 million
or a loss of $0.196 per unit basic and diluted. These results were modestly
lower than the loss of $0.187 per unit basic and diluted in the prior year.
The lower HOI was offset by a higher future income tax recovery and lower
interest costs.
    During the first quarter of 2009, InnVest reclassified five hotels as
discontinued operations. As at March 31, 2009, six assets were held for sale.
For the first quarter of 2009, discontinued operations generated net losses of
$799 compared to $876 in the prior period. The prior year also includes a $500
writedown of the book value of assets held for sale.
    InnVest's net loss for the first quarter totaled $15.4 million, or a loss
of $0.207 per unit basic and diluted, relatively unchanged from the prior
year.
    For the three months ended March 31, 2008, InnVest generated FFO of $447
($0.006 per unit) compared to $3.4 million in the prior period ($0.047 per
unit). A distributable loss of $3.8 million (loss of $0.050 per unit) compared
to a loss of $272 in the prior year (loss of $0.004 per unit). The decline is
primarily attributable to the $4.8 million reduction in HOI during the
quarter.
    Distributions declared during the quarter totaled $14.0 million or
$0.1875 per unit, compared to $20.6 million or $0.28125 per unit in the prior
period, reflecting the reduced level of monthly distributions to $0.0625 per
unit beginning in November 2008. InnVest's payout ratio for the twelve month
period ended March 31, 2009 was 87.5%.

    BALANCE SHEET REVIEW

    At March 31, 2009, the REIT has cash on hand totaling $12.9 million, of
which $2.5 million is restricted under the REIT's Declaration of Trust for the
replacement of furniture, fixtures, and equipment and for capital
improvements.
    InnVest has an operating line of $40.0 million to fund short-term changes
in working capital. At March 31, 2009, $20.2 million was drawn on the credit
facility. This operating line expires in August 2009. Management anticipates
that the facility will be renewed in the normal course of business.
    A $9.0 million bridge loan was scheduled to expire in March 2009.
Following the end of the quarter, management successfully finalized an
extension for $7.0 million of the bridge through August 2009, bringing the
maturity in line with the REIT's operating line with the same lender. The $2.0
million difference was repaid in April 2009.
    During the first quarter of 2009, InnVest successfully extended two
mortgages totalling $13.5 million which were originally scheduled to mature in
February 2010. One mortgage of $6.9 million was extended to September 30,
2012, while the second mortgage of $6.6 million was extended to December 31,
2012 at a weighted average interest rate of approximately 6.8% compared to the
previous rate of 6.2%.
    At March 31, 2009, the Trust's leverage excluding and including
convertible debentures was 47.7% and 57.0%, respectively. At March 31, 2009,
InnVest has mortgages payable of $945.4 million with a weighted average term
of 3.5 years and a weighted average effective interest rate of 5.7%.
Currently, approximately 9.7% of the Trust's mortgage debt is at floating
rate.
    In addition, InnVest has access to a loan facility, granted in
conjunction with property mortgages, for up to $36.1 million to fund 50% to
100% of capital expenditures incurred at individual hotels. At March 31, 2009,
the Trust has drawn $12.2 million on this facility to fund certain capital
investments, unchanged from December 31, 2008. The remaining capacity under
this facility approximates $23.9 million. In April 2009, an additional $6.9
million was funded under this facility.
    Capital expenditures for the three months ended March 31, 2009 totalled
$6.0 million compared to the Trust's FF&E reserve of $5.4 million during the
period. Given the seasonality of hotel operations, revenues are not earned
evenly through the year. Conversely, capital expenditures are typically
scheduled during lower occupancy periods to avoid guest displacement. However,
in light of the current operating environment, non-essential capital
investments during the first quarter of 2009 have been limited in order to
meet the Trust's desire to conserve liquidity. The Trust expects its capital
investment to be largely funded through its FF&E reserve for the year 2009.

    INCOME TAX DEFERRAL PERCENTAGE

    For 2009, the REIT estimates that the non-taxable portion of the
distributions made to unitholders during the year will be approximately 40%
(2008 - 44%).

    RECENT DEVELOPMENTS

    During the first quarter, InnVest classified five assets as held for
sale. The Trust recognized a non-cash impairment charge of $29.6 million
during the fourth quarter of 2008 based on the anticipated fair value of these
assets. The hotel properties are primarily in tertiary markets impacted by the
manufacturing sector decline and which have also been particularly impacted by
new supply in recent years. In aggregate, six assets were classified as
discontinued operations as at March 31, 2009.
    During the first quarter of 2009, the Trust purchased and cancelled
211,500 trust units under the normal course issuer bid ("NCIB") at an
aggregate cost of $689 (average cost of $3.26 per unit). Subsequent to March
31, 2009, InnVest purchased and cancelled an additional 70,000 units at an
aggregate cost of $245 (average cost of $3.49 per unit). In aggregate since
implementing the NCIB, the REIT has acquired 560,000 units at an aggregate
cost of $1.9 million (average cost of $3.34 per unit).
    On October 9, 2008, the REIT adopted a unitholder rights plan, which
expired on April 9, 2009. On April 14, 2009, the REIT's unitholders approved
the adoption of the second amended and restated unitholder rights plan, which
will be in effect for a period of up to three years. InnVest did not adopt
either of the plans in response to any specific take-over proposal, nor has it
been made aware of any such proposal. The unitholder rights plan is intended
to ensure that unitholders receive fair treatment in the event of an
unsolicited attempt to gain control of InnVest and, in such event, to ensure
unitholders receive full value and that the Board of Trustees has time to
consider alternatives to maximize unitholder value. The rights will only
become exercisable upon the occurrence of certain triggering events, including
the acquisition by a person or group of persons of 20% or more of the
outstanding units in a transaction not approved by InnVest's board of
Trustees.
    Following the end of the first quarter of 2009, InnVest completed the
divestiture of one hotel which had been identified as held for sale since the
end of 2007. The transaction was completed for gross proceeds of $4.1 million
less closing costs.

    OUTLOOK

    While credit markets appear to be stabilizing, significant uncertainty
remains which leads us to maintain a cautious outlook in the near term.
    Building on our efforts in 2008, we have adapted our strategy to position
the REIT to address the current environment with particular attention to our
balance sheet and liquidity. Our priority in 2009 will be to continue to be
proactive in our capital management initiatives including efforts to address
debt maturities. We are continually seeking opportunities to recycle our
capital efficiently and have actively expanded our sales efforts with respect
to certain underperforming assets. Having developed and implemented
contingency plans throughout the portfolio, we continue to manage our
portfolio aggressively to maximize the performance of each hotel.
    Historically, the lodging industry performance has been highly correlated
with the economy given the largely discretionary nature of leisure and
business travel. While Canada cannot escape the impact of the volatile global
trends, it remains fundamentally stronger than many other countries, including
the U.S., as evidenced by national RevPAR performance over the last several
months.
    Despite the near term operating environment, with new supply effectively
constrained by the credit markets, InnVest is positioned for a stronger
recovery when demand trends improve. InnVest's current portfolio is
diversified by geography, customer and brand. This diversity, combined with
our partnership with experienced hotel operators, contributes to the
resiliency of the portfolio and positions the REIT to effectively manage
through the current economic environment.

    FORWARD LOOKING STATEMENTS

    Statements contained in this press release that are not historical facts
are forward-looking statements which involve risk and uncertainties which
could cause actual results to differ materially from those expressed in the
forward-looking statements. Among the key factors that could cause such
differences are real estate investment risks, hotel industry risks and
competition. These and other factors are discussed in InnVest REIT's 2008
annual information form which is available at www.sedar.com or
www.innvestreit.com. InnVest disclaims any intention or obligation to update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, unless required to do so by
applicable securities law.

    TRUST PROFILE

    InnVest holds Canada's largest hotel portfolio together with an interest
in Choice Hotels Canada Inc. the largest franchisor of hotels in Canada. The
hotel portfolio currently comprises 146 hotel properties, with over 19,000
guest rooms, operated under internationally recognized franchise brands such
as Comfort Inn(R), Holiday Inn(R) Quality Suites/Inn(R), Radisson(R),
Delta(R), Travelodge(R), Hilton Hotel(R), Staybridge Suites(R), Fairmont
Hotels(R), Sheraton Suites(R) and Best Western(R). InnVest's trust units and
outstanding convertible debentures trade on the Toronto Stock Exchange under
the symbols INN.UN, INN.DB.A, INN.DB.B and INN.DB.C, respectively.

    QUARTERLY CONFERENCE CALL

    Management will host a conference call on Friday May 8, 2009 at 11:00
a.m. Eastern time to discuss the performance of InnVest. Investors are invited
to access the call by dialing (416) 644-3423 or 1-800-731-5774. You will be
required to identify yourself and the organization on whose behalf you are
participating. A recording of this call will be made available May 8th
beginning at 1:00 pm through to 11:59 p.m. on May 15th. To access the
recording please call (416) 640-1917 and use the reservation number 21303354
followed by the number sign.


    
    InnVest Real Estate Investment Trust
    -------------------------------------------------------------------------

    CONSOLIDATED BALANCE SHEETS

                                                     March 31,   December 31,
    (in thousands of dollars) (unaudited)                2009           2008
    -------------------------------------------------------------------------
                                                                   (Restated,
                                                                     Note 21)
    ASSETS

    Current Assets
      Cash                                       $     10,470   $     18,143
      Accounts receivable                              23,902         27,319
      Prepaid expenses and other assets                12,090          8,861
      Assets held for sale (Note 21)                      818            610
    -------------------------------------------------------------------------
                                                       47,280         54,933

    Restricted cash                                     2,472          3,013

    Hotel properties (Note 3)                       1,779,908      1,792,828

    Other real estate properties (Note 4)              15,987         16,078

    Licence contracts (Note 5)                         17,524         17,853

    Intangible and deferred assets (Note 6)            39,988         42,165

    Assets held for sale (Note 21)                     49,741         50,234
    -------------------------------------------------------------------------

                                                 $  1,952,900   $  1,977,104
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES

    Current Liabilities
      Bank indebtedness (Note 7)                 $     29,200   $      9,000
      Accounts payable and accrued liabilities         68,386         71,876
      Acquisition related liabilities                   2,332          2,561
      Distributions payable                             4,652          4,651
      Current portion of long-term debt (Note 8)       11,215         10,763
      Liabilities related to assets held
       for sale (Note 21)                               1,052          1,157
    -------------------------------------------------------------------------
                                                      116,837        100,008

    Long-term debt (Note 8)                           927,559        930,317

    Other long-term obligations (Note 9)                7,199          7,139

    Convertible debentures (Note 10)                  180,929        180,170

    Future income tax liability (Note 12)             204,046        210,977

    Long-term liabilities related to assets
     held for sale (Note 21)                            9,899         12,763
    -------------------------------------------------------------------------
                                                    1,446,469      1,441,374

    UNITHOLDERS' EQUITY                               506,431        535,730
    -------------------------------------------------------------------------

                                                 $  1,952,900   $  1,977,104
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The accompanying notes are an integral part of these consolidated
    financial statements.



    InnVest Real Estate Investment Trust
    -------------------------------------------------------------------------

    CONSOLIDATED STATEMENTS OF NET LOSS AND COMPREHENSIVE LOSS

                                                 Three Months   Three Months
                                                        Ended          Ended
    (in thousands of dollars, except                 March 31,      March 31,
     per unit amounts) (unaudited)                       2009           2008
    -------------------------------------------------------------------------
                                                                   (Restated,
                                                                     Note 21)

    Total revenues (reference only) (Note 19)    $    130,430   $    138,601

    Hotel revenues                               $    127,701   $    135,940
    -------------------------------------------------------------------------

    Hotel expenses
      Operating expenses (Note 17)                     90,835         93,826
      Property taxes, rent and insurance               13,394         13,456
      Management fees (Note 17)                         5,056          5,489
    -------------------------------------------------------------------------
                                                      109,285        112,771
    -------------------------------------------------------------------------

    Hotel operating income                             18,416         23,169
    -------------------------------------------------------------------------

    Other (income) and expenses
      Interest on mortgages and other debt             13,505         11,789
      Interest on operating and bridge loans              167          2,847
      Convertible debentures interest and
       accretion                                        3,604          3,560
      Corporate and administrative (Note 17)            1,359          1,226
      Capital tax                                          51             39
      Other business income, net (Note 20)               (912)          (993)
      Other income                                         (5)           (72)
      Depreciation and amortization                    22,199         21,990
    -------------------------------------------------------------------------
                                                       39,968         40,386
    -------------------------------------------------------------------------

    Loss before income tax recovery                   (21,552)       (17,217)
    Future income tax recovery (Note 12)               (6,931)        (3,520)
    -------------------------------------------------------------------------

    Loss from continuing operations                   (14,621)       (13,697)

    Loss from discontinued operations (Note 21)          (799)          (876)
    Writedown of asset held for sale (Note 21)              -           (500)
    -------------------------------------------------------------------------
                                                         (799)        (1,376)
    -------------------------------------------------------------------------

    Net loss and comprehensive loss              $    (15,420)  $    (15,073)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Loss from continuing operations,
     per unit (Note 15)
      Basic and diluted                          $     (0.196)  $     (0.187)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net loss per unit (Note 15)
      Basic and diluted                          $     (0.207)  $     (0.206)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Loss from discontinued operations,
     per unit
      Basic and diluted                          $     (0.011)  $     (0.019)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The accompanying notes are an integral part of these consolidated
    financial statements.



    InnVest Real Estate Investment Trust
    -------------------------------------------------------------------------

    CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY

                                 Net Income
                                 (Loss) and
    (in thousands of          Comprehensive     Distri-                Units
     dollars) (unaudited)      Income (Loss)   butions    Deficit       in $
    -------------------------------------------------------------------------

    Balance December 31, 2007     $ 137,923  $(299,691) $(161,768) $ 757,375

    CHANGES DURING THE PERIOD
    Net loss and comprehensive
     loss                           (15,073)         -    (15,073)         -
    Unit distributions (Note 16)          -    (20,618)   (20,618)         -
    Distribution reinvestment
     plan units issued                    -          -          -      3,873
    Vested executive compensation         -          -          -        151
    Executive and trustee
     compensation                         -          -          -         38

    -------------------------------------------------------------------------

    Balance March 31, 2008        $ 122,850  $(320,309) $(197,459) $ 761,437
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Balance December 31, 2008     $ 134,546  $(378,164) $(243,618) $ 768,034

    CHANGES DURING THE PERIOD
    Net loss and comprehensive
     loss                           (15,420)         -    (15,420)         -
    Unit distributions (Note 16)          -    (13,956)   (13,956)         -
    Distribution reinvestment
     plan units issued                    -          -          -        660
    Buy back and cancellation
     of units                             -          -          -     (2,180)
    Conversion of debentures              -          -          -         20
    Vested executive compensation         -          -          -        170
    Executive and trustee
     compensation                         -          -          -         38

    -------------------------------------------------------------------------

    Balance March 31, 2009        $ 119,126  $(392,120) $(272,994) $ 766,742
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                             Executive    Holders'
    (in thousands of            Contributed    Compen-  Conversion
     dollars) (unaudited)           Surplus    sation      Option      Total
    -------------------------------------------------------------------------

    Balance December 31, 2007     $       -  $     417  $   8,642  $ 604,666

    CHANGES DURING THE PERIOD
    Net loss and comprehensive
     loss                                 -          -          -    (15,073)
    Unit distributions (Note 16)          -          -          -    (20,618)
    Distribution reinvestment
     plan units issued                    -          -          -      3,873
    Vested executive compensation         -       (151)         -          -
    Executive and trustee
     compensation                         -        117          -        155

    -------------------------------------------------------------------------

    Balance March 31, 2008        $       -  $     383  $   8,642  $ 573,003
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Balance December 31, 2008     $   1,938  $     734  $   8,642  $ 535,730

    CHANGES DURING THE PERIOD
    Net loss and comprehensive
     loss                                 -          -          -    (15,420)
    Unit distributions (Note 16)          -          -          -    (13,956)
    Distribution reinvestment
     plan units issued                    -          -          -        660
    Buy back and cancellation
     of units                         1,491          -          -       (689)
    Conversion of debentures              -          -          -         20
    Vested executive compensation         -       (170)         -          -
    Executive and trustee
     compensation                         -         48          -         86

    -------------------------------------------------------------------------

    Balance March 31, 2009        $   3,429  $     612  $   8,642  $ 506,431
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The accompanying notes are an integral part of these consolidated
    financial statements.



    InnVest Real Estate Investment Trust
    -------------------------------------------------------------------------

    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                 Three Months   Three Months
                                                        Ended          Ended
                                                     March 31,      March 31,
    (in thousands of dollars) (unaudited)                2009           2008
    -------------------------------------------------------------------------
                                                                   (Restated,
                                                                     Note 21)
    OPERATING ACTIVITIES
    Loss from continuing operations              $    (14,621)  $    (13,697)

    Add (deduct) items not affecting operations
      Depreciation and amortization                    22,199         21,990
      Non-cash portion of interest expense                914            549
      Future income tax recovery                       (6,931)        (3,520)
      Non-cash executive and trustee compensation          86            155
      Convertible debentures accretion                    290            287
      Discontinued operations                            (560)           (73)
      Changes in non-cash working capital              (3,562)        (6,152)
    -------------------------------------------------------------------------
                                                       (2,185)          (461)
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    Repayment of long-term debt                        (2,653)      (157,228)
    Proceeds from long-term debt                            -        387,486
    Units repurchased pursuant to normal
     course issuer bid (Note 14)                         (689)             -
    Unit distributions                                (13,295)       (16,703)
    Increase in operating loan                         20,200         15,600
    Proceeds from bridge loan                               -          8,907
    Repayment of bridge loan                                -       (215,000)
    Discontinued operations repayment of debt          (2,886)          (101)
    -------------------------------------------------------------------------
                                                          677         22,961
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Capital expenditures on hotel properties           (5,937)        (5,843)
    Discontinued operations capital expenditures          (31)           (76)
    Hotel under development expenditures                  (82)        (3,818)
    Change in intangible and deferred assets             (656)          (431)
    Acquisition of hotel property                           -        (17,175)
    Decrease in restricted cash                           541             71
    -------------------------------------------------------------------------
                                                       (6,165)       (27,272)
    -------------------------------------------------------------------------

    Decrease in cash during the period                 (7,673)        (4,772)
    Cash, beginning of period                          18,143         22,271
    -------------------------------------------------------------------------
    Cash, end of period                          $     10,470   $     17,499
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental disclosure of cash flow
     information:
    Cash paid for interest                       $     15,686   $     14,823
    Cash paid for income taxes
     (including capital tax)                     $         76   $         68

    The accompanying notes are an integral part of these consolidated
    financial statements.



    -------------------------------------------------------------------------
    InnVest Real Estate Investment Trust

    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    March 31, 2009 (all dollar amounts are in thousands, except unit and
    per unit amounts) (unaudited)
    -------------------------------------------------------------------------

    1.  Basis of Presentation

    InnVest Real Estate Investment Trust ("InnVest" or the "REIT") is an
    unincorporated open-ended real estate investment trust governed by the
    laws of Ontario. The REIT began operations on July 26, 2002. The units of
    the REIT are traded on the Toronto Stock Exchange under the symbol of
    "INN.UN". As at March 31, 2009, the REIT owned 147 Canadian hotels
    operated under international brands and has a 50% interest in Choice
    Hotels Canada Inc. ("CHC").

    The accompanying unaudited interim consolidated financial statements are
    prepared in accordance with Canadian generally accepted accounting
    principles ("GAAP"). The accounting principles used in these financial
    statements are consistent with those used in the annual consolidated
    financial statements for the year ended December 31, 2008, except as
    disclosed in Note 2. These financial statements do not include all the
    information and disclosure required by GAAP for annual financial
    statements, and should be read in conjunction with the annual
    consolidated financial statements for the year ended December 31, 2008.

    Revenues earned from hotel operations fluctuate throughout the year, with
    the third quarter being the highest due to the increased level of leisure
    travel in the summer months, and the first quarter being the lowest as
    leisure travel tends to be lower at that time of year.

    2.  Change in Significant Accounting Policies

    Goodwill and intangible assets

    Effective January 1, 2009, the REIT adopted the Canadian Institute of
    Chartered Accountants ("CICA") Section 3064 - Goodwill and Intangible
    Assets. The standard was applied retrospectively. This new standard has
    no material impact to the REIT.

    3.  Hotel Properties

                                                       March 31, December 31,
                                                           2009         2008
                                        Accumulated    Net Book     Net Book
                                 Cost  Depreciation       Value        Value
    -------------------------------------------------------------------------
                                                                   (Restated,
                                                                     Note 21)

    Land                  $   184,248  $         -  $   184,248  $   184,248
    Buildings               1,691,837      185,741    1,506,096    1,517,708
    Furniture, fixtures
     and equipment            145,979       56,415       89,564       90,872
    -------------------------------------------------------------------------
                          $ 2,022,064  $   242,156  $ 1,779,908  $ 1,792,828
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As at March 31, 2009, the two hotels accounted for as development
    properties with a combined net book value of $35,302 (December 31, 2008 -
    $35,352) no longer meet the criteria under the REIT's accounting policy
    for newly built hotels acquired or developed and as such are now
    considered operating hotel properties subject to depreciation.
    Capitalized net operating losses for the three months ended March 31,
    2009 were $82 (December 31, 2008 - $ 838). These losses include mortgage
    interest capitalized of $87 (year ended December 31, 2008 - $1,009).

    4.  Other Real Estate Properties

    Other real estate properties include office and retail properties and a
    retirement residence.

                                                       March 31, December 31,
                                                           2009         2008
                                        Accumulated    Net Book     Net Book
                                 Cost  Depreciation       Value        Value
    -------------------------------------------------------------------------

    Land                  $     1,624  $         -  $     1,624  $     1,624
    Buildings                  15,425        1,102  $    14,323       14,412
    Furniture, fixtures
     and equipment                 73           33  $        40           42
    -------------------------------------------------------------------------
                          $    17,122  $     1,135  $    15,987  $    16,078
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    5.  Licence Contracts

                                                       March 31, December 31,
                                                           2009         2008
                                        Accumulated    Net Book     Net Book
                                 Cost  Amortization       Value        Value
    -------------------------------------------------------------------------

    Licence contracts     $    26,320  $     8,796  $    17,524  $    17,853
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the three months ended March 31, 2009, the licence contracts were
    amortized by $329 (March 31, 2008 - $329).

    6.  Intangible and Deferred Assets

                                                       March 31, December 31,
                                                           2009         2008
                                        Accumulated    Net Book     Net Book
                                 Cost  Amortization       Value        Value
    -------------------------------------------------------------------------
                                                                   (Restated,
                                                                     Note 21)

    Customer
     relationships        $    48,794  $    17,226  $    31,568  $    33,918
    Tenant relationships        2,595        1,446  $     1,149        1,270
    Franchise rights            2,375        1,107  $     1,268          716
    Lease origination costs     6,256          707  $     5,549        5,741
    Other                       1,046          592  $       454          503
    -------------------------------------------------------------------------
    Total intangible assets    61,066       21,078       39,988       42,148
    Deferred financing
     costs related to
     bridge loan                    -            -            -           17
    -------------------------------------------------------------------------
                          $    61,066  $    21,078  $    39,988  $    42,165
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the three months ended March 31, 2009, the intangible assets were
    amortized by $2,810 (March 31, 2008 - $2,470) and the deferred financing
    costs related to the bridge loans were amortized by $17 (March 31, 2008 -
    $1,314).

    7.  Bank Indebtedness

    The REIT has a $40,000 operating line that bears interest at the Canadian
    bank prime rate plus 0.5%. It is secured by 14 properties and is due
    August 1, 2009.

    Proceeds of $9,000 from a bridge loan were received on March 19 2008, for
    365 days, whereby the REIT provided an additional unencumbered hotel as
    security. This loan was extended to August 1, 2009 during the quarter,
    which included a pay-down of $2,000, made on April 7, 2009. The extension
    bears interest at Canadian Bankers' Acceptance rate plus 3.5% and
    requires interest payments only.

    There is a risk that bank lenders will not refinance the bank credit
    facility on terms and conditions acceptable to the REIT or on any terms
    at all.

                                                     March 31,   December 31,
                                                         2009           2008
    -------------------------------------------------------------------------

    Operating line                               $     20,200   $          -
    Bridge loan                                         9,000          9,000
    -------------------------------------------------------------------------
                                                 $     29,200   $      9,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    8.  Long-term Debt

                                                     March 31,   December 31,
                                                         2009           2008
    -------------------------------------------------------------------------
                                                                   (Restated,
                                                                     Note 21)

    Mortgages payable                            $    945,395   $    948,064
    Less debt issuance costs                           (6,621)        (6,984)
    -------------------------------------------------------------------------
    Total long-term debt                              938,774        941,080
    Less current portion                              (11,215)       (10,763)
    -------------------------------------------------------------------------
    Net long-term debt                           $    927,559   $    930,317
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Substantially all of the REIT's assets have been pledged as security
    under debt agreements. At March 31, 2009, long-term debt had a weighted
    average interest rate of 5.6% (December 31, 2008 - 5.7%) and a weighted
    average effective interest rate of 5.7% (December 31, 2008 - 5.8%). The
    long-term debt is repayable in average monthly payments of principal and
    interest totalling $5,235 (December 31, 2008 - $5,483) per month, and
    matures at various dates from July 25, 2010 to March 21, 2018.

    Scheduled repayment of long-term debt is as follows:

                                     Scheduled         Due on
                                    Repayments       Maturity          Total
    -------------------------------------------------------------------------

    2009 (remainder of the year)  $      8,449   $          -   $      8,449
    2010                                 9,492        169,748        179,240
    2011                                 9,593        318,858        328,451
    2012                                11,012         12,387         23,399
    2013                                11,355              -         11,355
    2014 and thereafter                 10,613        383,888        394,501
    -------------------------------------------------------------------------
                                  $     60,514   $    884,881   $    945,395
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The current portion of long-term debt on the balance sheet is based on
    the twelve months ending March 31, 2010, whereas the repayment schedule
    above reflects the fiscal year.

    The estimated fair value of the REIT's long-term debt at March 31, 2009
    was approximately $913,219 (December 31, 2008 - $933,784). This estimate
    was determined by discounting expected cash flows at the interest rates
    currently being offered to the REIT for debt of the same remaining
    maturities.

    Long-term debt includes $91,937 (December 31, 2008 - $92,129) of
    mortgages payable, which are subject to floating interest rates. Annual
    interest expense will increase by $919 for every 1% increase in the base
    Bankers' Acceptance rate.

    Interest expense on mortgages and other debt, interest on operating and
    bridge loans, as well as convertible debentures interest are considered
    operating items in the statement of cash flows.

    The REIT has access to a loan facility, granted in conjunction with
    property mortgages, of up to $23,904 available to fund 50% to 100% of
    capital expenditures incurred at individual hotels. During the quarter
    ended March 31, 2009, the REIT has drawn $ nil on this facility
    (December 31, 2008 - $12,196). Subsequent to March 31, 2009, the REIT
    drew an additional $6,888 from this facility, in the ordinary course of
    business.

    9.  Other Long-term Obligations

                                                     March 31,   December 31,
                                                         2009           2008
    -------------------------------------------------------------------------
                                                                   (Restated,
                                                                     Note 21)

    Capital leases                               $      1,662   $      1,662
    Other lease obligations                               685            658
    -------------------------------------------------------------------------
                                                        2,347          2,320
    Less current portion                                 (195)          (195)
    -------------------------------------------------------------------------
    Total lease obligations                             2,152          2,125
    Pension liability                                   3,539          3,522
    Asset retirement obligation                         1,508          1,492
    -------------------------------------------------------------------------
    Total other long-term obligations            $      7,199   $      7,139
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Defined Benefit Pension Plans

    The defined benefit pension plans were assumed pursuant to the
    acquisition of certain hotels in 2006 and 2007. The most recent actuarial
    valuation with respect to the funding of the REIT's pension plans was
    prepared on March 31, 2009.

    The pension plan assets as at March 31, 2009 consist of the following:

                                         Non-Union
                                              Non-     March 31, December 31,
                           Management   Management         2009         2008
                              Pension      Pension        Total        Total
                              Benefit      Benefit      Benefit      Benefit
                                Plans        Plans        Plans        Plans
    -------------------------------------------------------------------------
    Accrued benefit
     obligation           $     4,598  $     1,034  $     5,632  $     5,513
    Fair value of plan
     assets                     2,197          944        3,141        3,263
    -------------------------------------------------------------------------
    Funded status
     - plan deficit             2,401           90        2,491        2,250
    Unamortized net
     actuarial gain               786          262        1,048        1,272
    -------------------------------------------------------------------------

    Accrued employee
     future benefit
     liability            $     3,187  $       352  $     3,539  $     3,522
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The pension expense for the three months ended March 31, 2009 is $98
    (March 31, 2008 - $337).

    10. Convertible Debentures

    The details of the three series of convertible debentures are outlined in
    the tables below:

                                             Effective   Original  Converted
                                   Interest   Interest     Face     to Trust
    Debenture      Maturity Date     Rate       Rate      Amount      Units
    -------------------------------------------------------------------------
    Series A      April 15, 2011     6.25%     7.73%    $  57,500  $ (11,736)
    Series B        May 31, 2013     6.00%     7.53%       75,000        (20)
    Series C      August 1, 2014     5.85%     7.42%       70,000          -
    -------------------------------------------------------------------------
                                                        $ 202,500  $ (11,756)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                     Face       Holders'
                    Amount     Conversion             Transaction   March 31,
    Debenture    Outstanding     Option    Accretion     Costs        2009
    -------------------------------------------------------------------------
    Series A      $  45,764    $  (2,289)  $   1,467   $     (56)  $  44,886
    Series B         74,980       (3,400)      1,361      (2,058)     70,883
    Series C         70,000       (2,953)        678      (2,565)     65,160
    -------------------------------------------------------------------------
                  $ 190,744    $  (8,642)  $   3,506   $  (4,679)  $ 180,929
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                             Effective   Original  Converted
                                   Interest   Interest     Face     to Trust
    Debenture      Maturity Date     Rate       Rate      Amount      Units
    -------------------------------------------------------------------------
    Series A      April 15, 2011     6.25%     7.73%    $  57,500  $ (11,736)
    Series B        May 31, 2013     6.00%     7.53%       75,000          -
    Series C      August 1, 2014     5.85%     7.42%       70,000          -
    -------------------------------------------------------------------------
                                                        $ 202,500  $ (11,736)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                     Face       Holders'
                    Amount     Conversion             Transaction   December
    Debenture    Outstanding     Option    Accretion     Costs      31, 2008
    -------------------------------------------------------------------------
    Series A      $  45,764    $  (2,289)  $   1,398   $    (333)  $  44,540
    Series B         75,000       (3,400)      1,241      (2,173)     70,668
    Series C         70,000       (2,953)        577      (2,662)     64,962
    -------------------------------------------------------------------------
                  $ 190,764    $  (8,642)  $   3,216   $  (5,168)  $ 180,170
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The fair value of the REIT's convertible debentures based on their
    trading prices on the Toronto Stock Exchange at March 31, 2009 is
    $102,745 (December 31, 2008 - $102,108).

    11. Capital Management

    The REIT manages its capital, which is defined as the aggregate of
    unitholders' equity and debt, under the terms of the Declaration of
    Trust. The REIT's capital management objectives are (i) to ensure
    compliance with debt and investment restrictions outlined in its
    Declaration of Trust as well as external existing debt covenants, (ii) to
    allow for the implementation of its acquisition strategy and hotel
    property refurbishment program, and (iii) to build long-term unitholder
    value. Issuances of equity and debt are approved by the Board of Trustees
    (the "Board") through their review and approval of the REIT's strategic
    plan and annual budget plan, along with changes to the approved plans
    periodically throughout each year.

    At March 31, 2009, InnVest's primary contractual obligations consisted of
    long-term mortgage obligations and convertible debentures. InnVest is not
    permitted to exceed certain financial leverage amounts under the terms of
    the Declaration of Trust. The REIT is permitted to hold indebtedness
    excluding convertible debentures up to a level of 50% of gross asset
    value. Further, the REIT is permitted to have indebtedness and
    convertible debentures up to a level of 60% of gross asset value. The
    Declaration of Trust also governs that individual property mortgages, or
    mortgages on a pool of properties, cannot exceed 75% of the fair value of
    the underlying property. InnVest calculates indebtedness in accordance
    with GAAP excluding non-interest bearing indebtedness, trade accounts
    payable, and any future income tax liability. InnVest calculates gross
    asset value as the total book value of assets on the REIT's balance
    sheet, plus accumulated depreciation and amortization, less future income
    tax liabilities.

    At March 31, 2009, the REIT's leverage excluding and including
    convertible debentures was 47.7% and 57.0% respectively, calculated as
    follows:

                                          March 31,              December 31,
                                              2009                      2008
    -------------------------------------------------------------------------
    Total assets per consolidated
     balance sheet                     $ 1,952,900               $ 1,977,104

    Accumulated depreciation and
     amortization                          295,696                   269,331
    Future income tax liability           (204,046)                 (210,977)
    Future income tax liability not
     included in assets                     18,695                    18,834
    -------------------------------------------------------------------------
    Gross asset value                  $ 2,063,245               $ 2,054,292
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Book value of mortgages
     and other
     indebtedness(1)      $   984,494        47.7%  $   970,071        47.2%
    Convertible
     debentures(2)            190,744         9.3%      190,764         9.3%
    -------------------------------------------------------------------------
                          $ 1,175,238        57.0%  $ 1,160,835        56.5%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Adjusted to eliminate financing issuance costs and include long-term
        debt related to assets held for sale.
    (2) Adjusted to face value.


    The REIT's Declaration of Trust also includes guidelines that limit
    capital expended to, among other items, the following:

    (a) Direct and indirect investments in real property on which hotels are
        situated and the hotel business conducted thereon, primarily in
        Canada, and in entities whose activities consist primarily of
        franchising hotels;
    (b) Temporary investments held in cash, deposits with a Canadian
        Chartered bank or trust company, short term government debt
        securities or in money market instruments of, or guaranteed by, a
        Schedule 1 Canadian bank, short term commercial paper, notes, bonds
        of other debt securities of a Canadian entity having a rating of at
        least R-1 (Mid) by Dominion Bond Rating Service or A-1 (Mid) by
        Standard & Poor's Corporation maturing prior to one year from the
        date of issue; and
    (c) Investments in mortgages or mortgage bonds, where the related
        security is a first mortgage on income producing real property which
        otherwise complies with (a) above and is subject to certain leverage
        limits and debt service coverage. The aggregate value of such
        investments shall not exceed 20% of the unitholders' equity.

    The REIT is in compliance with these guidelines.

    The REIT is also subject to certain restrictions on the issuance of
    equity as discussed in Note 12. The REIT can issue on a cumulative basis
    a total of approximately $143,000 in equity annually in each of 2009 and
    2010 and maintain its relief from taxation to the end of 2010. The REIT
    issued $888 in equity during the three months ended March 31, 2009
    (March 31, 2008 - $4,063).

    As outlined in the Declaration of Trust, the REIT is required to
    distribute monthly to unitholders not less than one-twelfth of eighty
    percent (80%) of distributable income of the REIT for the calendar year
    (see Note 16).

    The REIT maintains an operating line of $40,000 with a Canadian Chartered
    bank with the following covenants in addition to the leverage limits
    under the Declaration of Trust:

    (a) Trailing twelve months consolidated earnings before interest, taxes,
        depreciation and amortization ("EBITDA") to consolidated interest
        expense of not less than 2.0 times (actual being 2.6 times at
        March 31, 2009 and 2.7 times at December 31, 2008, respectively);
    (b) Trailing twelve months consolidated EBITDA to consolidated debt
        service of not less than 1.5 times (actual being 2.3 times at
        March 31, 2009 and 2.3 times at December 31, 2008); and
    (c) Unitholders' Equity of not less than $300,000 (actual being $506,431
        at March 31, 2009 and $535,730 at December 31, 2008, respectively).

    12. Income Taxes and Future Income Tax Liability

    The REIT currently qualifies as a Mutual Fund Trust for income tax
    purposes. As required by its Declaration of Trust, the REIT intends to
    distribute all taxable income to its unitholders and to deduct these
    distributions for income tax purposes (see Note 16).

    In June 2007, a Bill was enacted for the taxation of publicly traded
    trusts, including income trusts (the "Bill"). The Bill applies to
    publicly traded trusts which existed prior to November 1, 2006 starting
    with taxation years ending in 2011, except for those trusts that qualify
    for the real estate investment trust ("Qualifying REIT") exception
    included in the legislation. An existing trust may lose its relief from
    taxation in the interim periods to 2011 where it undergoes "undue
    expansion". Pursuant to the legislation, a REIT which carries on Canadian
    hotel operations (including through subsidiaries) will not be a
    Qualifying REIT. As a result, the REIT will be subject to tax starting
    January 1, 2011.

    The Bill may adversely affect the level of cash distribution to
    unitholders commencing in 2011 if the REIT does not become a Qualifying
    REIT by then. Management is reviewing whether it is feasible to
    reorganize the REIT so that non-qualifying operations and assets are
    transferred under a plan of arrangement to a taxable entity that is held
    by the REIT unitholders, and that the REIT hotels, which continue to be
    owned by the REIT, are leased by it to the taxable entity. It is not
    possible at this preliminary juncture to provide any assurances that any
    such reorganization or a similar reorganization can or will be
    implemented before 2011, or that any such reorganization, if implemented,
    would not result in material costs or other adverse consequences to the
    REIT and its unitholders.

    13. Financial Instruments

    Risk Management

    In the normal course of business, the REIT is exposed to a number of
    risks that can affect its operating performance. These risks, and the
    actions taken to manage them, are as follows:

    Interest Rate Risk

    The time period over which management is spreading debt maturities
    implies an average term to maturity of approximately five years. This
    strategy reduces the REIT's exposure to re-pricing risk resulting from
    short-term interest rate fluctuations in any one year. Management is of
    the view that such a strategy will provide the most effective interest
    rate risk management for debt.

    The REIT's floating rate debt balance is monitored by Management to
    minimize the REIT's exposure to interest rate fluctuations. As at
    March 31, 2009, the REIT's floating rate debt balance of $91,937
    (December 31, 2008 - $92,129) is approximately 9.7% of total long-term
    debt.

    Credit Risk

    Credit risk relates to the possibility that hotel guests, either
    individual or corporate, do not pay the amounts owed to the REIT. The
    REIT mitigates this risk by limiting its exposure to customers allowed to
    pay by invoice after check out ("direct bill"). Accounts receivable as at
    March 31, 2009 is $23,902 (December 31, 2008 - $27,319). InnVest reviews
    accounts receivable and the allowance for doubtful accounts is adjusted
    for any balances which are determined by management to be uncollectable.
    This provision adjustment is expensed in the hotel operating income. The
    allowance as at March 31, 2009 is $623 or 2.6% (December 31, 2008 - $805
    or 2.9%) of total receivables. The amount credited in the operating
    income for the three months ended March 31, 2009 is $100, due to amounts
    provided for, which were subsequently collected (March 31, 2008 - $49).

    Liquidity Risk

    Liquidity risk arises from the possibility of not having sufficient debt
    and equity capital available to the REIT to fund its growth and capital
    maintenance programs and refinance its obligations as they arise.

    There is a risk that lenders will not refinance maturing debt on terms
    and conditions acceptable to the REIT or on any terms at all.
    Management's strategy mitigates the REIT's exposure to an excessive
    amount of debt maturing in any one year. There is also a risk that bank
    lenders will not refinance the operating credit facility on terms and
    conditions acceptable to the REIT or on any terms at all.

                                                   Three months
                                                         ending  Contractual
                            Remainder                  March 31,        Cash
                              of 2009         2010         2011      flows(1)
    -------------------------------------------------------------------------
    Mortgage payable
     - principal          $     8,449  $   179,240  $   269,899  $   457,588
    Mortgage payable
     - interest(2)             41,187       50,229        9,665      101,081
    Convertible debentures
     - interest                 9,408       11,455        2,047       22,910
    Bank loans - principal      9,000            -            -        9,000
    Bank loans - interest          94            -            -           94
    -------------------------------------------------------------------------
    Total                 $    68,138  $   240,924  $   281,611  $   590,673
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Contractual cash flows include principal and interest payments for
        the next 24 months ignore extensions options available to the REIT.
    (2) Interest amounts for floating rate debt is based on interest rates
        prevailing at March 31, 2009


    Fair Values

    The fair values of the REIT's financial assets and liabilities,
    representing net working capital, approximate their recorded values at
    March 31, 2009 and December 31, 2008 due to their short-term nature.

    The fair value of the REIT's long-term debt is less than the carrying
    value by approximately $32,176 at March 31, 2009 (December 31, 2008 -
    $24,476) due to changes in interest rates since the dates on which the
    individual mortgages were arranged. The fair value of long-term debt has
    been estimated based on the current market rates for mortgages with
    similar terms and conditions.

    The fair value of the REIT's convertible debentures is less than the
    carrying value by approximately $78,184 at March 31, 2009 (December 31,
    2008 - $78,062). The fair value of convertible debentures has been
    estimated based on the market rates for convertible debentures, as at
    March 31, 2009 and December 31, 2008.

    Letters of Credit

    As at March 31, 2009, the REIT has letters of credit totalling $3,693
    (December 31, 2008 - $3,693) held on behalf of security deposits for
    various utility companies and liquor licences, and additional security
    for the pension liabilities.

    14. Unitholders' Equity

    The REIT is authorized to issue an unlimited number of units, each of
    which represents an equal undivided beneficial interest in any
    distributions from the REIT. All units are of the same class with equal
    rights and privileges. Per the Declaration of Trust, units cannot be
    issued from treasury unless the trustees consider it not to be dilutive
    to ensuing annual distributions of distributable income to existing
    unitholders.

                                                        Units         Amount
    -------------------------------------------------------------------------
    Balance at December 31, 2007                   73,000,694   $    757,375
    Units issued under distribution
     reinvestment plan                                427,230          3,873
    Units issued for vested executive
     compensation plan                                 16,033            151
    Units issued under trustee compensation plan        3,711             38
    -------------------------------------------------------------------------
    Balance at March 31, 2008                      73,447,668   $    761,437
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Balance at December 31, 2008                   74,412,317   $    768,034
    Units issued under distribution
     reinvestment plan                                202,067            660
    Units repurchased pursuant to normal
     course issuer bid                               (211,500)        (2,180)
    Units issued on conversion of debentures            1,342             20
    Units issued for vested executive
     compensation plan                                 19,052            170
    Units issued under trustee compensation plan       11,060             38
    -------------------------------------------------------------------------
    Balance at March 31, 2009                      74,434,338   $    766,742
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Pursuant to the REIT's normal course issuance bid (the "Bid"), the REIT
    purchased and cancelled 211,500 units (December 31, 2008 - 278,500 units)
    at an average price of $3.26 per unit (December 31, 2008 - $3.36 per
    unit). The REIT recognized $1,491 of contributed surplus (December 31,
    2008 - $1,938) upon the cancellation of these units. Purchases under the
    Bid commenced on November 11, 2008 and will terminate on November 10,
    2009.

    Trustee Compensation Plan

    The members of the Board of Trustees receive 50% of their annual retainer
    in units (based on the then current market price of the units). The REIT
    has set aside 100,000 units in reserve for this purpose. The balance in
    this reserve account at March 31, 2009 is 12,608 units. Under the Trustee
    Compensation Plan, 11,060 units were issued during the three months ended
    March 31, 2009 (three months ended March 31, 2008 - 3,711 units).

    Executive Compensation Plan

    The senior executives participate in the executive compensation plan
    under which units are granted by the Board of Trustees from time to time.
    The REIT has reserved a maximum of 1,000,000 units for issuance under the
    plan. The balance in this reserve account at March 31, 2009 is 788,902
    units. A unit granted through the plan entitles the holder to receive, on
    the vesting date, the then current fair market value of the unit plus the
    value of the cash distributions that would have been paid on the unit if
    it had been issued on the date of grant assuming the reinvestment of the
    distribution into REIT units. The payment will be satisfied through the
    issuance of units.

    The following table summarizes the status of the executive compensation
    plan at March 31, 2009, excluding granted units which have fully vested:

                                                        Units
                                      Unvested    Accumulated
                                     Executive           from
                                         units  Distributions    Total Units
    -------------------------------------------------------------------------
    January 1, 2006 - granted           12,968          5,613         18,581
    January 1, 2007 - granted           15,000          5,213         20,213
    January 1, 2008 - granted           20,455          4,731         25,186
    January 1, 2009 - granted           25,500          1,472         26,972
    Units vested 2009                   (6,484)        (2,546)        (9,030)
    -------------------------------------------------------------------------
                                        67,439         14,483         81,922
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In March 2009, the Board of Trustees approved the granting of 25,500
    units effective as of January 1, 2009. These units vest equally on the
    third and fourth anniversaries of the effective date of grant.

    Distribution Reinvestment Plan ("DRIP")

    The REIT has a DRIP whereby eligible Canadian unitholders may elect to
    have their distributions of income from the REIT automatically reinvested
    in additional units.

    15. Per Unit Information

                                Three Months Ended        Three Months Ended
                                    March 31, 2009            March 31, 2008
    -------------------------------------------------------------------------
                                          Weighted                  Weighted
                                     Average Units             Average Units
    -------------------------------------------------------------------------
                                                                   (Restated,
                                                                     Note 21)

    Loss from continuing
     operations - basic     $ (14,621)  74,439,594   $ (13,697)   73,234,488
    Dilutive effect of
     executive
     compensation plan              -       79,679           -        61,950
    -------------------------------------------------------------------------
    Loss from continuing
     operations - diluted   $ (14,621)  74,519,273   $ (13,697)   73,296,438
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                Three Months Ended        Three Months Ended
                                    March 31, 2009            March 31, 2008
    -------------------------------------------------------------------------
                                          Weighted                  Weighted
                                     Average Units             Average Units
    -------------------------------------------------------------------------
    Net loss - basic        $ (15,420)  74,439,594   $ (15,073)   73,234,488
    Dilutive effect of
     executive
     compensation plan              -       79,679           -        61,950
    -------------------------------------------------------------------------
    Net loss - diluted      $ (15,420)  74,519,273   $ (15,073)   73,296,438
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The impact of the convertible debentures has been excluded from the per
    unit calculations above because the impact of the conversions would not
    be dilutive.

    16. Distributions to Unitholders

    Distributions to unitholders are computed based on distributable income
    as defined by the Declaration of Trust.

    Distributable income is a measure of cash flow that is not defined under
    Canadian GAAP and, accordingly, may not be comparable to similar measures
    used by other issuers.

    Distributable income is defined as net income in accordance with Canadian
    GAAP, subject to certain adjustments as set out in the Declaration of
    Trust, including adding back depreciation and amortization, amortization
    of fair value debt adjustment and future income tax (recovery) expense,
    excluding any gains or losses on the disposition of real property and
    future income taxes, deducting the amount calculated, at 4% to 5% of
    hotel revenues, for the reserve for the replacement of furniture,
    fixtures and equipment and capital improvements, the accretion on
    convertible debentures that is included in the computation of net income,
    and making any other adjustments determined by the trustees of the REIT
    in their discretion. As outlined in the Declaration of Trust, the REIT is
    required to distribute monthly to unitholders not less than one-twelfth
    of eighty percent (80%) of distributable income of the REIT for the
    calendar year.

    First quarter distributions are typically funded through cash on hand and
    the bank operating line given the seasonality of earnings through the
    year in contrast to fixed costs.

                                                 Three Months   Three Months
                                                        Ended          Ended
                                                     March 31,      March 31,
                                                         2009           2008
    -------------------------------------------------------------------------
    Net loss                                     $    (15,420)  $    (15,073)
    -------------------------------------------------------------------------
    Add (deduct)
      Depreciation and amortization                    22,729         22,670
      Future income tax recovery                       (6,931)        (3,520)
      Non-cash portion of mortgage interest
       expense                                            424            258
      Non-cash portion of convertible debentures
       interest and accretion                             784            578
      Reserve for replacement of furniture,
       fixtures and equipment and capital
       improvements                                    (5,427)        (5,848)
      Writedown of assets held for sale                     -            500
      Non-cash executive and trustee compensation          86            155
      Deferred land lease expense and retail
       lease income, net                                    2              8
    -------------------------------------------------------------------------
                                                       11,667         14,801
    -------------------------------------------------------------------------
    Distributable loss                                 (3,753)          (272)
    Distributions
      Required under the Declaration of Trust               -              -
      Discretionary                                    13,956         20,618
    -------------------------------------------------------------------------
    Distributions paid or payable                      13,956         20,618
    -------------------------------------------------------------------------
    Distributions in excess of
     distributable loss                          $     17,709   $     20,890
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    17. Management Agreements

    Westmont Hospitality Canada Limited

    On July 26, 2002, the REIT entered into a Management Agreement for hotel
    management and accounting services and an Administrative Services
    Agreement (the "Agreements") with Westmont Hospitality Canada Limited
    ("Westmont"). Westmont is considered a related party to the REIT as a
    result of its ability to exercise significant influence through the
    Agreements. Westmont manages all but fifteen of the REIT's hotels.

    The Agreements have an initial term of ten years with two successive
    five-year renewal terms, subject to the consent of Westmont and approval
    of the REIT. On September 15, 2008, the REIT exercised the first five-
    year extension term on the Agreements, extending the expiration to
    July 25, 2017. The REIT's independent trustees approved the extension
    following a review by third party hospitality consulting firms based in
    Canada. The Agreements provide for the payment of an annual management
    fee to Westmont in an amount equal to 3.375% of gross revenues during the
    term of the Agreements, including renewal periods. In addition, Westmont
    may receive an annual incentive fee if the REIT achieves distributable
    income in excess of $1.25 per unit. No management incentive fees were
    paid during the periods presented.

    Accounting fees are calculated based on a fixed charge per room which
    increases by the Consumer Price Index change annually. For assets sold
    which are managed by Westmont, the REIT pays a termination fee equal to
    the fees paid based on trailing twelve months revenues. No termination
    fees were paid in the three months ended March 31, 2009 and 2008.

    In addition to the base management fee and incentive fee, Westmont is
    entitled to fees based on a percentage of the cost of purchasing certain
    goods and supplies and certain construction costs and capital
    expenditures, fees for accounting services, reasonable out-of-pocket
    costs and expenses (other than general and administrative expenses or
    overhead costs except as otherwise provided in the Administrative
    Services Agreement) and project management and general contractor service
    fees related to hotel renovations managed by Westmont.

    Also, for certain hotels owned by InnVest and not managed by Westmont,
    Westmont is entitled to an asset management fee based on a fixed
    percentage of the purchase price of the hotel or a fixed percentage of
    hotel operating income, after the reserve for replacement of furniture,
    fixtures and equipment and capital improvements, subject to an annual
    minimum fee.

    During the three months ended March 31, 2009 and 2008, the fees charged
    to the REIT pursuant to the Agreements were as follows:


                                                     March 31,      March 31,
                                                         2009           2008
    -------------------------------------------------------------------------
                                                                   (Restated,
    Fees from continuing operations:                                 Note 21)

      Management fees                            $      2,407   $      2,558
      Asset management fees (included in
       management fee expense)                            505            650
      Accounting services (included in hotel
       operating expenses)                                557            532
      Administrative services (included in
       corporate and administrative expenses)             117             95
      Project management and general contractor
       services (capitalized to hotel properties)         210            109
    Fees from discontinued operations                     192            338
    -------------------------------------------------------------------------
                                                 $      3,988   $      4,282
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In addition, salaries of REIT employees paid by Westmont and reimbursed
    by the REIT were $108 (March 31, 2008 - $36). Included in accounts
    payable and accrued liabilities are amounts owed to Westmont at March 31,
    2009 totalling $1,324 (December 31, 2008 - $1,484).

    Other Management Agreements

    The REIT entered into management agreements with Hilton Canada Co.
    ("Hilton") to manage the two Hilton hotels acquired in 2006. The
    agreements provide for the payment of an annual management fee to Hilton
    in an amount equal to 2.5% until December 31, 2008 and then 3.0% of gross
    revenues during the balance of the term of the agreements. The agreements
    mature on December 31, 2026. For the three months ended March 31, 2009,
    total management fees paid to Hilton were $212 (March 31, 2008 - $196).

    The REIT assumed the hotel management agreements with Delta Hotels
    Limited ("Delta"), dated January 1, 2003 when two Delta hotels were
    purchased in 2006. The agreements provide for the payment of an annual
    management fee to Delta in an amount equal to 3% of total revenues from
    the hotel, plus 0.5% of total revenues from the hotel if the hotel's
    annual gross operating profit is greater than the budgeted gross
    operating profit. The agreements mature on December 31, 2015, with two
    ten-year extension options. For the three months ended March 31, 2009,
    total management fees paid to Delta were $118 (March 31, 2008 - $125).

    With the acquisition of the Legacy Portfolio in September 2007, InnVest
    assumed the existing hotel management agreements with Fairmont Hotels and
    Resorts ("Fairmont") or Delta for each of the Legacy Portfolio hotels.
    The agreements provide for the payment of a base management fee and an
    incentive management fee to either Fairmont or Delta. The REIT also
    assumed a portfolio incentive fee in which 11 of the 25 hotels of Legacy
    Hotels Real Estate Investment Trust participated, of which six are now
    owned or leased by InnVest. The base management fee is equal to 3% of
    total hotel revenues for nine of the hotels and 2% of total hotel
    revenues for the remaining two hotels. The agreements mature from
    December 31, 2010 to December 31, 2047. The incentive management fees and
    portfolio incentive fees are calculated based on net operating income
    from hotel operations plus amortization less the capital replacement
    reserve, in excess of a threshold. For the three months ended March 31,
    2009, total management fees paid for the Legacy Portfolio were $1,829
    (March 31, 2008 - $1,975).

    18. Segmented Financial Information

    The REIT operates hotel properties throughout Canada. Information related
    to these properties by geographic segment is presented below. The REIT
    primarily evaluates operating performance based on hotel operating
    income. All key financing, investing and capital allocation decisions are
    centrally managed. The comparatives have been restated to exclude
    discontinued operations and assets held for sale at March 31, 2009.


                        Western    Ontario     Quebec   Atlantic       Total
    -------------------------------------------------------------------------

    Three months ended
     March 31, 2009
    Hotel revenues    $  36,525  $  48,046  $  26,487  $  16,643  $  127,701
    Hotel expenses       28,228     40,699     24,285     16,073     109,285
    -------------------------------------------------------------------------
    Hotel operating
     income           $   8,297  $   7,347  $   2,202  $     570  $   18,416
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Three months ended
     March 31, 2008
     (Restated,
     Note 21)
    Hotel revenues    $  38,610  $  51,368  $  27,937  $  18,025  $  135,940
    Hotel expenses       29,323     41,465     25,350     16,633     112,771
    -------------------------------------------------------------------------
    Hotel operating
     income           $   9,287  $   9,903  $   2,587  $   1,392  $   23,169
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital
     expenditures on
     hotel properties,
      Three months
       ended:
    March 31, 2009    $   1,708  $   2,165  $   1,558  $     506  $    5,937
    March 31, 2008
     (Restated,
     Note 21)         $     413  $   1,866  $   1,351  $   2,213  $    5,843
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Hotel properties
    March 31, 2009    $ 507,389  $ 634,455  $ 395,285  $ 242,779  $1,779,908
    December 31, 2008
     (Restated,
     Note 21)         $ 512,032  $ 637,791  $ 406,931  $ 236,074  $1,792,828
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    19. Total Revenues

                                                 Three Months   Three Months
                                                        Ended          Ended
                                                     March 31,      March 31,
                                                         2009           2008
    -------------------------------------------------------------------------
                                                                   (Restated,
                                                                     Note 21)

    Hotel revenues                               $    127,701   $    135,940
    Other business income (Note 20)                     2,729          2,661
    -------------------------------------------------------------------------
                                                 $    130,430   $    138,601
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    20. Other Business Income

                                                           Three       Three
                                                          Months      Months
                                                           Ended       Ended
                   Franchise     Retail/  Retirement    March 31,   March 31,
                    Business     Office    Residence        2009        2008
    -------------------------------------------------------------------------

    Revenues      $    1,793  $      660  $      276  $    2,729  $    2,661
    Expenses           1,300         332         185       1,817       1,668
    -------------------------------------------------------------------------
    Other
     business
     income, net  $      493  $      328  $       91  $      912  $      993
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Other business income includes franchise business income, which is
    InnVest's 50% share of CHC's operations, and the income from the other
    real estate properties.

    21. Assets Held for Sale and Discontinued Operations

    Five hotel properties, four in Ontario and one in Quebec were
    reclassified as assets held for sale during the three months ended
    March 31, 2009. These five hotels are included in the discontinued
    operations for the three months ended March 31, 2009 and the three months
    ended March 31, 2008 have been restated to reflect these operations as
    discontinued operations.

    Three Ontario hotel properties and one Quebec hotel property were
    reclassified as assets held for sale on December 18, 2007 and are
    included in the discontinued operations for the three months ended
    March 31, 2008. All but one Ontario hotel were sold during the year ended
    December 31, 2008. Subsequent to March 31, 2009, the REIT sold an Ontario
    hotel property that was held for sale for $4,100.

    Discontinued operations for the three months ended March 31, 2009 and
    2008 are as follows:

                                                         2009           2008
    -------------------------------------------------------------------------
                                                                   (Restated)

    Hotel revenues                               $      4,351   $      6,307
    -------------------------------------------------------------------------

    Hotel expenses
      Operating expenses                                3,288          4,562
      Property taxes, rent and insurance                1,009          1,214
      Management fees                                     147            213
    -------------------------------------------------------------------------
                                                        4,444          5,989
    -------------------------------------------------------------------------
    Hotel operating (loss) income                         (93)           318
    -------------------------------------------------------------------------
    Interest on mortgages                                 176            514
    Depreciation and amortization                         530            680
    -------------------------------------------------------------------------
                                                          706          1,194
    -------------------------------------------------------------------------
    Loss from discontinued operations                    (799)          (876)

    Writedown of assets held for sale                       -            500
    -------------------------------------------------------------------------

    Net loss from discontinued operations        $       (799)  $     (1,376)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    %SEDAR: 00018005E




For further information:

For further information: Kenneth D. Gibson, President and Chief
Executive Officer; Tamara L. Lawson, Chief Financial Officer and Corporate
Secretary, Tel: (905) 206-7100, Fax: (905) 206-7114, Website:
www.innvestreit.com

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InnVest Real Estate Investment Trust

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